Retail, and small-cap retail, in particular, are not having a good time in 2023. The sector is down about 40% from its highs and struggling to gain traction. In fact, some names continue to trend lower. Today's lesson is that opportunities in dead markets are often possible. Takeaways from the Q2 results and guidance are that business is stabilizing above 2019 levels, and there is an outlook for growth in 2024. Share prices for stocks like Big Lots (NYSE: BIG), Shoe Carnival (NASDAQ: SCVL), and Chico's Fashion (NYSE: CHS) are trading at or near long-term lows. And with analysts starting to change their tunes, it looks like a buying opportunity is developing. 

Big Lots: Swing For the Fences With this Oversold Retailer 

Big Lots was a big win during the pandemic, and then it became a big disappointment. A post-stimulus letdown and tightening economic conditions squeezed Big Lots' target consumers, leading to eight quarters of sustained revenue contraction and mounting losses. Losses are primarily due to restructuring and turnaround efforts, which have begun to pay off. The Q2 results were not good; revenue contracted double digits, and the loss was substantial, but the top and bottom lines were better than expected and came with an optimistic outlook. 

Big Lots expects business to begin picking up in the 4th quarter. The company expects comps to improve sequentially and for gross margin to widen. The company also expects to lower costs as it leans into efficiency and completes its restructuring efforts. Those efforts include unlocking capital via a sale-leaseback of properties in California. The transaction produced nearly $300 million, boosting the company's liquidity to over $500 million. At this level, the company has sufficient cash to sustain operations until it regains traction. In the words of CEO Bruce Thorn, Big Lots is ready to get back on offense. 

Analysts rate Big Lots at Reduce but have begun to raise their price targets. MarketBeat is tracking three boosted targets since the Q2 release. All are above consensus, which assumes a 22% upside. 

Shoe Carnival is a Good Fit for Income Investors 

Shoe Carnival's Q2 results were mixed but confirmed business is normalizing at 2019 levels or higher with growth in the forecast. The salient point is that revenue and income are sufficient to sustain the dividend payment, which is attractive from the distribution growth perspective. Only one analyst rates this stock at Hold: Institutional interest is high at 66%, and they have been buying on balance in 2023. 

The company stock yields about 1.80%, with shares trading at $22.5 or seven times the Marketbeat.com earnings consensus, and it has a robust outlook for growth. The company has already increased the payout for 10 years and only pays about 25% of its earnings, suggesting a long runway for future increases. The company is also running a high double-digit distribution CAGR, which suggests future increases will also be robust. 

Omni-Channel Chico's Fashion In Solid Market 

Chico's Fashion suffers the same headwinds as all of retail, but it navigates the times well. The Q2 revenue is down only a low-single-digit figure compared to last year, and margins are holding up. The guidance caught the market's attention, including additional margin strength this year. Chico's has two analysts following it; both came out with revisions following the release. One reiterated, and the other lowered, their target to a consensus that is 45% above the current action. Notably, the low mark of $6 is still 30% above the recent activity. 

The price action in Chico's moved lower following the report, and it is approaching critical support. Support is likely at the bottom of the range where institutions are likely buyers. The institutions own about 90% of the stock and have bought on balance over the last 12 months. The Q3 activity shows them trimming shares but not in significant amounts, which is helping to lower the price. Assuming support is confirmed at the bottom of the range, this stock should continue moving sideways.